Industry Voice: Where are Asia's Dividend Opportunities?

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Yu Zhang, Portfolio Manager at Matthews Asia
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Yu Zhang, Portfolio Manager at Matthews Asia

Over the past year markets have paid more attention to reflationary policies in Asia than earnings improvements. As a result, companies that have been growing the fastest—sometimes irrespective of valuations—have performed the best.

It is our belief, however, that if Asia's earnings continue to grow as we expect the market will broaden beyond some of these large capitalization names to reward companies irrespective of market size. In this environment, a total return approach focusing on income and growth can capture compelling opportunities.

While it is possible to find good income-generating companies in almost any sector in Asia, we see more opportunities in consumer-related businesses, as opposed to companies that are more export-oriented or cyclical in nature. In our portfolios, we tend to balance companies that grow their dividends with those that offer a stable dividend yield.

Current opportunities

An allocation to small- and mid-cap stocks can help investors capitalize on Asia's domestic consumption story and the burgeoning middle class. The secular trend of rising disposable income is a structural tailwind for businesses and should propel their multiyear growth.

Dividend opportunities abound not only in countries where structural reform efforts and an increasing emphasis on shareholder returns support better corporate governance practices, such as China and South Korea, but also in those that are less in the limelight such as Vietnam, Indonesia, Thailand and Bangladesh.

Cyclical companies led the strong rally in 2017. More defensive businesses, such as telecoms and health care, lagged behind on a relative basis. In our view, cyclicals are not running out of steam as the overall valuations are still fairly well-anchored. Other sectors, such as IT businesses, might look frothy, but outside of that we can still find reasonably priced companies that we believe can deliver on earnings growth.

Since the latter half of 2016, our dividend strategies have been positioning toward dividend growth stocks. Even in the large-cap space, our focus has been on more cyclical sectors such as financials, consumer discretionary and industrials, while we pared back some exposure to telecoms, health care and consumer staples. In the current environment, we see better opportunities elsewhere.

To learn more about how we invest in Asia, visit global.matthewsasia.com/income

Risk Considerations

Investments involve risk. Past performance is no guarantee of future results. Investing in international and emerging markets may involve additional risks, such as social and political instability, market illiquidity, exchange-rate fluctuations, a high level of volatility and limited regulation.

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For Institutional/Professional Investors Only.

The information contained herein has been derived from sources believed to be reliable and accurate at the time of compilation, but no representation or warranty (express or implied) is made as to the accuracy or completeness of any of this information. Matthews International Capital Management, LLC ("Matthews Asia") and its affiliates do not accept any liability for losses either direct or consequential caused by the use of this information. The views and information discussed herein are as of the date of publication, are subject to change and may not reflect current views. The views expressed represent an assessment of market conditions at a specific point in time, are opinions only and should not be relied upon as investment advice regarding a particular investment or markets in general. Such information does not constitute a recommendation to buy or sell specific securities or investment vehicles.  This document does not constitute investment advice or an offer to provide investment advisory or investment management services, or the solicitation of an offer to provide investment advisory or investment management services, in any jurisdiction in which an offer or solicitation would be unlawful under the securities law of that jurisdiction.

Matthews Asia is a U.S.-based investment adviser registered with the U.S. Securities and Exchange Commission who has not represented and will not represent that it is otherwise registered with any other regulator or regulatory body.

In the UK, this document is only made available to professional clients and eligible counterparties as defined by the Financial Conduct Authority ("FCA"). Under no circumstances should this document be forwarded to anyone in the UK who is not a professional client or eligible counterparty as defined by the FCA. Issued in the UK by Matthews Global Investors (UK) Limited ("Matthews Asia (UK)"), which is authorised and regulated by the FCA, FRN 667893.

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